Defendant-Appellant the National Collegiate Athletic Association
("NCAA") promulgated a rule limiting annual compensation of certain Division I
entry-level coaches to $16,000. Basketball coaches affected by the rule filed a
class action challenging the restriction under Section 1 of the Sherman Antitrust
Act. The district court granted summary judgment on the issue of liability to the
coaches and issued a permanent injunction restraining the NCAA from
promulgating this or any other rules embodying similar compensation restrictions.
The NCAA now appeals, and we affirm.

I. Background

The NCAA is a voluntary unincorporated association of approximately
1,100 educational institutions.(1) The
association coordinates the intercollegiate
athletic programs of its members by adopting and promulgating playing rules,
standards of amateurism, standards for academic eligibility, regulations
concerning recruitment of student athletes, rules governing the size of athletic
squads and coaching staffs, and the like. The NCAA aims to "promote
opportunity for equity in competition to assure that individual student-athletes
and institutions will not be prevented unfairly from achieving the benefits
inherent in participation in intercollegiate athletics."

The NCAA classifies sports programs into separate divisions to reflect
differences in program size and scope. NCAA Division I basketball programs are
generally of a higher stature and have more visibility than Division II and III
basketball programs. Over 300 schools play in Division I, and each Division I
member hires and employs its own basketball coaches.

During the 1980s, the NCAA became concerned over the steadily rising
costs of maintaining competitive athletic programs, especially in light of the
requirements imposed by Title IX of the 1972 Education Amendments Act to
increase support for women's athletic programs. The NCAA observed that some
college presidents had to close academic departments, fire tenured faculty, and
reduce the number of sports offered to students due to economic constraints. At
the same time, many institutions felt pressure to "keep up with the Joneses" by
increasing spending on recruiting talented players and coaches and on other
aspects of their sports programs in order to remain competitive with rival
schools. In addition, a report commissioned by the NCAA known as the
"Raiborn Report" found that in 1985 42% of NCAA Division I schools reported
deficits in their overall athletic program budgets, with the deficit averaging
$824,000 per school. The Raiborn Report noted that athletic expenses at all
Division I institutions rose more than 100% over the eight-year period from 1978
to 1985. Finally, the Report stated that 51% of Division I schools responding to
NCAA inquiries on the subject suffered a net loss in their basketball programs
alone that averaged $145,000 per school.

Part of the problem identified by the NCAA involved the costs associated
with part-time assistant coaches. The NCAA allowed Division I basketball teams
to employ three full-time coaches, including one head coach and two assistant
coaches, and two part-time coaches. The part-time positions could be filled by
part-time assistants, graduate assistants, or volunteer coaches. The NCAA
imposed salary restrictions on all of the part-time positions. A volunteer coach
could not receive any compensation from a member institution's athletic
department. A graduate assistant coach was required to be enrolled in a graduate
studies program of a member institution and could only receive compensation
equal to the value of the cost of the educational experience (grant-in-aid)
depending on the coach's residential status (i.e. a non-resident graduate assistant
coach could receive greater compensation to reflect the higher cost of out-of-state
tuition than could an in-state student). The NCAA limited compensation to part-time assistants
to the value of full grant-in-aid compensation based on the value
of out-of-state graduate studies.

Despite the salary caps, many of these part-time coaches earned $60,000 or
$70,000 per year. Athletic departments circumvented the compensation limits by
employing these part-time coaches in lucrative summer jobs at profitable sports
camps run by the school or by hiring them for part-time jobs in the physical
education department in addition to the coaching position. Further, many of
these positions were filled with seasoned and experienced coaches, not the type
of student assistant envisioned by the rule.

In January of 1989, the NCAA established a Cost Reduction Committee
(the "Committee") to consider means and strategies for reducing the costs of
intercollegiate athletics "without disturbing the competitive balance" among
NCAA member institutions. The Committee included financial aid personnel,
inter-collegiate athletic administrators, college presidents, university faculty
members, and a university chancellor. In his initial letter to Committee members,
the Chairman of the Committee thanked participants for joining "this gigantic
attempt to save intercollegiate athletics from itself." It was felt that only a
collaborative effort could reduce costs effectively while maintaining a level
playing field because individual schools could not afford to make unilateral
spending cuts in sports programs for fear that doing so would unduly hamstring
that school's ability to compete against other institutions that spent more money
on athletics. In January of 1990, the Chairman told NCAA members that the goal
of the Committee was to "cut costs and save money." It became the consensus of
the Committee that reducing the total number of coaching positions would reduce
the cost of intercollegiate athletic programs.

The Committee proposed an array of recommendations to amend the
NCAA's bylaws, including proposed Bylaw 11.6.4 that would limit Division I
basketball coaching staffs to four members--one head coach, two assistant
coaches, and one entry-level coach called a "restricted-earnings coach".(2) The
restricted-earnings coach category was created to replace the positions of part-time assistant,
graduate assistant, and volunteer coach.(3)
The Committee believed
that doing so would resolve the inequity that existed between those schools with
graduate programs that could hire graduate assistant coaches and those who could
not while reducing the overall amount spent on coaching salaries.

A second proposed rule, Bylaw 11.02.3, restricted compensation of
restricted-earnings coaches in all Division I sports other than football to a total of
$12,000 for the academic year and $4,000 for the summer months (the "REC
Rule" for restricted-earnings coaches).(4) The
Committee determined that the
$16,000 per year total figure approximated the cost of out-of-state tuition for
graduate schools at public institutions and the average graduate school tuition at
private institutions, and was thus roughly equivalent to the salaries previously
paid to part-time graduate assistant coaches. The REC Rule did allow restricted-earnings
coaches to receive additional compensation for performing duties for
another department of the institution provided that (1) such compensation is
commensurate with that received by others performing the same or similar
assignments, (2) the ratio of compensation received for coaching duties and any
other duties is directly proportional to the amount of time devoted to the two
areas of assignment, and (3) the individual is qualified for and actually performs
the duties outside the athletic department for which the individual is
compensated. The REC Rule did not prevent member institutions from using
savings gained by reducing the number and salary of basketball coaches to
increase expenditures on other aspects of their athletic programs.

Supporting adoption of the REC Rule, the Committee stated:

The largest expense item in the athletics budget is personnel.
Currently, only football and basketball have limits on the number of
coaches who may be employed, and the existing categorical designations of
part-time graduate student and volunteer coach have not been effective in
reducing the number of full-time paid employees associated with the sport.
In addition, the committee recognizes the recent proliferation of part-time
personnel associated with many Division I sports.

Proposed limitations reflect an effort to (1) reduce the number of
coaches associated with each sport by at least one full-time-equivalent
position; (2) establish an "unrestricted" head or assistant coach category
that will accommodate any type of volunteer, paid, full-time or part-time
coach; and (3) establish a "restricted earnings" category that will encourage
the development of new coaches while more effectively limiting
compensation to such coaches.

"Report of the NCAA Special Committee on Cost Reduction," Part Two, ¶ 1.

The NCAA adopted the proposed rules, including the REC Rule, by
majority vote in January of 1991, and the rules became effective on August 1,
1992.(5) The rules bind all Division I
members of the NCAA that employ
basketball coaches. The schools normally compete with each other in the labor
market for coaching services.

In this case, plaintiffs-appellees were restricted-earnings men's basketball
coaches at NCAA Division I institutions in the academic year 1992-93. They
challenged the REC Rule's limitation on compensation under section 1 of the
Sherman Antitrust Act, 15 U.S.C. § 1 (1990), as an unlawful "contract,
combination . . . or conspiracy, in restraint of trade." They did not challenge
other rules promulgated by the NCAA, including the restriction on the number of
coaches. The district court exercised jurisdiction pursuant to 28 U.S.C. § 1337
(1993)(6) and 15 U.S.C. §§ 15
and 26 (1982).(7)

The district court addressed the issue of liability before addressing issues
of class certification and damages. Ruling on cross-motions for summary
judgment, the court found the NCAA liable for violating section 1. Following
the ruling, an administrative committee of the NCAA rescinded the compensation
limits. However, the rescission was subject to ratification by NCAA members at
their January 1996 meeting, and the appellate record does not reflect that such
ratification ever occurred. Prior to the meeting, a new rule was proposed that
would have eliminated the restricted-earnings coach position and replaced it with
a position having similar compensation restrictions. On January 5, 1996, the
district court, pursuant to 15 U.S.C. § 26, permanently enjoined the NCAA from
enforcing or attempting to enforce any restricted-earnings coach salary
limitations against the named plaintiffs, and it further enjoined the NCAA from
"reenacting the compensation limitations embodied in [the REC Rule]." The
NCAA appeals the permanent injunction.

II. Summary Judgment Review

Although this is an interlocutory appeal, we have appellate jurisdiction
pursuant to 28 U.S.C. § 1292(a)(1) (1993) because the NCAA seeks review of an
order granting a permanent injunction.(8) In
reviewing the injunction, we may also
address the summary judgment order that served as the district court's principal
legal basis for granting the injunction because the district court's ruling on
summary judgment was inextricably intertwined with its ruling granting a
permanent injunction. SeeTri-State Generation & Transmission Ass'n, Inc. v.
Shoshone River Power, Inc., 874 F.2d 1346, 1351 (10th Cir. 1989); seealsoMoore v. City of Wynnewood, 57 F.3d 924, 930 (10th Cir. 1995) (court may
consider pendent jurisdiction appeals beyond those authorized for interlocutory
appeal if the issues are inextricably intertwined) (citing Swint v. Chambers
County Comm'n, 115 S. Ct. 1203, 1212 (1995)) .

Typically, we review a district court's grant of an injunction for abuse of
discretion. SeeUnited States v. Jenks, 22 F.3d 1513, 1519 (10th Cir. 1994).
However, in this case, the NCAA challenges only that part of the injunction
finding that it violated antitrust law.(9) The
district court relied on its prior order
granting summary judgment for that issue. We review de novo a summary
judgment which serves as a basis for an injunction. Seeid. at 1517.

Summary judgment is appropriate if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact
and that the moving party is entitled to judgment as a matter of law. When
applying this standard, we examine the factual record and reasonable
inferences therefrom in the light most favorable to the party opposing
summary judgment. If there is no genuine issue of material fact in dispute,
then we next determine if the substantive law was correctly applied by the
district court.

While the movant bears the burden of showing the absence of a
genuine issue of material fact, the movant need not negate the non-movant's claim, but need only
point to an absence of evidence to support
the non-movant's claim. If the movant carries this initial burden, the non-movant may not rest
upon its pleadings, but must set forth specific facts
showing a genuine issue for trial as to those dispositive matters for which
it carries the burden of proof. An issue of material fact is genuine if a
reasonable jury could return a verdict for the non-movant.

Section 1 of the Sherman Act provides, "Every contract, combination in the
form of trust or otherwise, or conspiracy, in restraint of trade or commerce among
the several States, or with foreign nations, is hereby declared to be illegal." 15
U.S.C. § 1. Because nearly every contract that binds the parties to an agreed
course of conduct "is a restraint of trade" of some sort, the Supreme Court has
limited the restrictions contained in section 1 to bar only "unreasonable restraints
of trade." NCAA v. Board of Regents, 468 U.S. 85, 98 (1984); seealsoStandard
Oil Co. v. United States, 221 U.S. 1, 52-60 (1911). To prevail on a section 1
claim under the Sherman Act, the coaches needed to prove that the NCAA (1)
participated in an agreement that (2) unreasonably restrained trade in the relevant
market. SeeReazin v. Blue Cross & Blue Shield of Kan., Inc., 899 F.2d
951, 959
(10th Cir. 1990). The NCAA does not dispute that the REC Rule resulted from
an agreement among its members. However, the NCAA does contest the district
court's finding that on the record before it, there was no genuine dispute of fact
that the REC Rule is an unreasonable restraint of trade.

Two analytical approaches are used to determine whether a defendant's
conduct unreasonably restrains trade: the per se rule and the rule of reason.
SeeSCFC ILC, Inc. v. Visa USA, Inc., 36 F.3d 958, 963 (10th Cir. 1994). The per
se rule condemns practices that "are entirely void of redeeming competitive
rationales." Id. Once a practice is identified as illegal per se, a court need
not
examine the practice's impact on the market or the procompetitive justifications
for the practice advanced by a defendant before finding a violation of antitrust
law. Rule of reason analysis, on the other hand, requires an analysis of the
restraint's effect on competition. SeeNational Soc'y of Prof'l Engineers v.
United States, 435 U.S. 679, 695 (1978). A rule of reason analysis first requires
a determination of whether the challenged restraint has a substantially adverse
effect on competition. SeeSCFC, 36 F.3d at 965; United States v. Brown
Univ.,
5 F.3d 658, 668 (3d Cir. 1993). The inquiry then shifts to an evaluation of
whether the procompetitive virtues of the alleged wrongful conduct justifies the
otherwise anticompetitive impacts. SeeBrown Univ., 5 F.3d at 669. The
district
court applied the rule of reason standard to its analysis of the REC Rule.

Horizontal price-fixing is normally a practice condemned as illegal per se.
SeeFTC v. Superior Court Trial Lawyers Ass'n, 493 U.S. 411, 436 n.19 (1990)
("horizontal price-fixing . . . has been consistently analyzed as a per se violation
for many decades"); United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223
(1940). By agreeing to limit the price which NCAA members may pay for the
services of restricted-earnings coaches, the REC Rule fixes the cost of one of the
component items used by NCAA members to produce the product of Division I
basketball. As a result, the REC Rule constitutes the type of naked horizontal
agreement among competitive purchasers to fix prices usually found to be illegal
per se. See, e.g., Mandeville Island Farms, Inc. v. American Crystal
Sugar Co.,
334 U.S. 219, 235 (1948) (complaint alleging conspiracy among sugar refiners to
purchase sugar-beets at agreed-upon prices sufficient to survive a motion for
dismissal because the challenged conduct is precisely the type of activity
condemned by section 1 of the Sherman Act); National Macaroni Mfrs. Ass'n v.
FTC, 345 F.2d 421, 426-27 (7th Cir. 1965) (agreement among macaroni
producers to limit amount of premium priced durum wheat purchased and to
substitute specified percentage of inferior wheat in finished macaroni per se
illegal because effect of restriction was effectively to reduce price of durum
wheat that had risen as a result of a recent shortage).

However, the Supreme Court recognized in Broadcast Music, Inc. v.
Columbia Broadcasting Sys., Inc., 441 U.S. 1, 23 (1979), that certain products
require horizontal restraints, including horizontal price-fixing, in order to exist at
all. Faced with such a product--the ASCAP blanket music license which could
not exist absent an agreement among artists to sell their rights at uniform prices--the Court held
that a rule of reason analysis should be applied to the restraint. Id.
at 24.

Subsequently, the Supreme Court in NCAA v. Board of Regents departed
from the general treatment given to horizontal price-fixing agreements by
refusing to apply a per se rule and instead adopting a rule of reason approach in
reviewing an NCAA plan for televising college football that involved both limits
on output and price-fixing. See 468 U.S. at 99-103. The Court explained:

Horizontal price fixing and output limitation are ordinarily
condemned as a matter of law under an "illegal per se" approach
because the probability that these practices are anticompetitive is so
high; a per se rule is applied "when the practice facially appears to
be one that would always or almost always tend to restrict
competition and decrease output." In such circumstances a restraint
is presumed unreasonable without inquiry into the particular market
context in which it is found. Nevertheless, we have decided that it
would be inappropriate to apply a per se rule to this case. This
decision is not based on a lack of judicial experience with this type
of arrangement, on the fact that the NCAA is organized as a
nonprofit entity, or on our respect for the NCAA's historic role in the
preservation and encouragement of intercollegiate amateur athletics.
Rather, what is critical is that this case involves an industry in which
horizontal restraints on competition are essential if the product is to
be available at all.

468 U.S. at 100-101 (quoting Broadcast Music, 441 U.S. at 19-20) (footnotes
omitted and emphasis added).

The "product" made available by the NCAA in this case is college
basketball; the horizontal restraints necessary for the product to exist include
rules such as those forbidding payments to athletes and those requiring that
athletes attend class, etc. Seeid. at 101-02 (what a sports league and its
members
"market . . . is competition itself . . . . Of course, this would be completely
ineffective if there were no rules . . . to create and define the competition to be
marketed."). Because some horizontal restraints serve the procompetitive
purpose of making college sports available, the Supreme Court subjected even
the price and output restrictions at issue in Board of Regents to a rule of reason
analysis. Seeid. at 103; seealsoHairston v. Pacific 10
Conference, 101 F.3d
1315, 1318-19 (9th Cir. 1996) (employing rule of reason analysis and finding that
imposing sanctions for violations of NCAA rules did not violate section 1 of the
Sherman Act); Banks v. NCAA, 977 F.2d 1081, 1088-94 (7th Cir. 1992)
(upholding no-draft and no-agent eligibility rules for student athletes under rule
of reason analysis); Justice v. NCAA, 577 F. Supp. 356, 379-82 (D. Ariz. 1983)
(NCAA sanctions against member institution imposed for violations of NCAA
rule barring compensation of student athletes did not violate antitrust laws under
rule of reason analysis).

Other courts also have applied a rule of reason analysis to sports league
rules, see I ABA Section of Antitrust Law, Antitrust Law Developments
115-16
(4th ed. 1997) (citing cases), including restraints otherwise given per se
treatment, see, e.g.,M&H Tire Co., Inc. v. Hoosier Racing Tire Corp., 733
F.2d
973, 980 (1st Cir. 1984) (applying rule of reason standard to a rule requiring all
auto racing competitors to use the same tire and stating that "in the sports area
various agreed-upon procedures may be essential to survival"). See also
Phillip E. Areeda, Antitrust Law ¶ 1478d, at 359 (1986) (noting that
courts "have
not woodenly applied the per se prohibitions developed for ordinary business
situations" to sports leagues).

Plaintiff coaches cite the Supreme Court's refusal to create exceptions to
the per se treatment of price-fixing schemes in cases such as Superior Court
Trial
Lawyers and Arizona v. Maricopa County Medical Soc'y, 457 U.S. 332, 342
(1982), and urge us to apply a per se analysis to the NCAA rule at issue in this
case. Since neither case dealt with a "product" such as college sports that
requires horizontal restraints to exist, the cases are not persuasive here in light of
the Supreme Court's analysis of NCAA price-fixing under a rule of reason in
Board of Regents.

The coaches also argue that Board of Regents is distinguishable because
the agreement in that case went to marketing the product itself--college sports--and because that
agreement was closer to a joint venture because it involved a
"joint selling arrangement." By contrast, they contend (1) that the hiring of
coaches involves the market for coaching services, an input, rather than college
sports, the output, and (2) that the price-fixing at issue in this case does not
involve "joint buying" because each school independently hires its own coaches.
The second point does not distinguish this case from Board of Regents. In Board
of Regents, like the present case, each school negotiated individually with
television networks within the constraints of price agreements. See 468 U.S. at
93.(10) The first point is similarly
unpersuasive. Board of Regents does not turn
on whether the agreement in question is based on input components or output
products. Rather, Board of Regents more generally concluded that because
horizontal agreements are necessary for sports competition, all horizontal
agreements among NCAA members, even those as egregious as price-fixing,
should be subject to a rule of reason analysis.(11)See 468 U.S. at 101-03.

Finally, the Supreme Court has made it clear that the per se rule is a
"demanding" standard that should be applied only in clear cut cases. SeeContinental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 50 (1977); accordWalker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 178
(1965) ("[T]he area of per se illegality is carefully limited."). As a result, courts
consistently have analyzed challenged conduct under the rule of reason when
dealing with an industry in which some horizontal restraints are necessary for the
availability of a product, even if such restraints involve horizontal price-fixing
agreements. See I ABA Section of Antitrust Law, supra, at 49 (citing cases).
Thus, we apply the rule of reason approach in this case.

Courts have imposed a consistent structure on rule of reason analysis by
casting it in terms of shifting burdens of proof. See I ABA Section of Antitrust
Law, supra, at 53 (citing cases). Under this approach, the plaintiff bears the
initial burden of showing that an agreement had a substantially adverse effect on
competition. SeeClorox Co. v. Sterling Winthrop, Inc., 117 F.3d 50, 56 (2d
Cir.
1997); Hairston, 101 F.3d at 1319; Orson, Inc. v. Miramax Film Corp., 79 F.3d
1358, 1367 (3d Cir. 1996); Brown Univ., 5 F.3d at 668; seealso I
ABA Section
of Antitrust Law, supra, at 53, 55 (citing cases); Areeda, supra,
¶ 1502, at 371-72. If the plaintiff meets this burden, the burden shifts to the
defendant to come
forward with evidence of the procompetitive virtues of the alleged wrongful
conduct. SeeClorox, 117 F.3d at 56; Hairston, 101 F.3d at 1319;
Orson, 79 F.3d
at 1367-68; Brown Univ., 5 F.3d at 669; seealso I ABA Section of
Antitrust
Law, supra, at 53, 66 (citing cases); Areeda, supra, ¶ 1502, at 372.
If the
defendant is able to demonstrate procompetitive effects, the plaintiff then must
prove that the challenged conduct is not reasonably necessary to achieve the
legitimate objectives or that those objectives can be achieved in a substantially
less restrictive manner. SeeClorox, 117 F.3d at 56; Hairston, 101
F.3d at 1319;
Orson, 79 F.3d at 1368; Brown Univ., 5 F.3d at 669; I ABA Section of
Antitrust
Law, supra, at 53, 66. Ultimately, if these steps are met, the harms and benefits
must be weighed against each other in order to judge whether the challenged
behavior is, on balance, reasonable. See Areeda, supra, ¶ 1502, at
372.

A. Anticompetitive Effect

We first review whether the coaches in this case demonstrated
anticompetitive effect so conclusively that summary judgment on the issue was
appropriate. A plaintiff may establish anticompetitive effect indirectly by
proving that the defendant possessed the requisite market power within a defined
market or directly by showing actual anticompetitive effects, such as control over
output or price. SeeOrson, 79 F.3d at 1367; Brown Univ., 5 F.3d at
668-69;
Bhan v. NME Hosp., Inc., 929 F.2d 1404, 1413 (9th Cir. 1991). A naked,
effective restraint on market price or volume can establish anticompetitive effect
under a truncated rule of reason analysis. SeeChicago Prof'l Sports Ltd.
Partnership v. National Basketball Ass'n, 961 F.2d 667, 674 (7th Cir. 1992)
(approving application of "quick look" rule of reason analysis that dispensed with
market definition and assessment of market power in a case involving an output
restriction established by the National Basketball Association).

The NCAA argues that the district court erred by failing to define the
relevant market and by failing to find that the NCAA possesses power in that
market. The NCAA urges that the relevant market in this case is the entire
market for men's basketball coaching services,(12) and it presented evidence
demonstrating that positions as restricted-earnings basketball coaches make up, at
most, 8% of that market. Thus, the NCAA argues it has at least created a genuine
issue of material fact about whether it possesses market power and that summary
judgment was therefore inappropriate.

The NCAA misapprehends the purpose in antitrust law of market
definition, which is not an end unto itself but rather exists to illuminate a
practice's effect on competition. In Board of Regents, the Court rejected a nearly
identical argument from the NCAA that a plan to sell television rights could not
be condemned under the antitrust laws absent proof that the NCAA had power in
the market for television programming. See 468 U.S. at 109. "As a matter of
law, the absence of proof of market power does not justify a naked restriction on
price or output. To the contrary, when there is an agreement not to compete in
terms of price or output, 'no elaborate industry analysis is required to demonstrate
the anticompetitive character of such an agreement.'" Id. (quoting National Soc'y
of Prof'l Engineers, 435 U.S. at 692). No "proof of market power" is required
where the very purpose and effect of a horizontal agreement is to fix prices so as
to make them unresponsive to a competitive marketplace. Seeid. at 110. Thus,
where a practice has obvious anticompetitive effects--as does price-fixing--there
is no need to prove that the defendant possesses market power. Rather, the court
is justified in proceeding directly to the question of whether the procompetitive
justifications advanced for the restraint outweigh the anticompetitive effects
under a "quick look" rule of reason. SeeChicago Prof'l Sports, 961 F.2d at
674.

We find it appropriate to adopt such a quick look rule of reason in this
case. Under a quick look rule of reason analysis, anticompetitive effect is
established, even without a determination of the relevant market, where the
plaintiff shows that a horizontal agreement to fix prices exists, that the agreement
is effective, and that the price set by such an agreement is more favorable to the
defendant than otherwise would have resulted from the operation of market
forces. See Gary R. Roberts, The NCAA, Antitrust, and Consumer
Welfare, 70
Tul. L. Rev. 2631, 2636-39 (1996) (citing Board of Regents, 468 U.S. at 109-10).
Under this standard, the undisputed evidence supports a finding of
anticompetitive effect. The NCAA adopted the REC Rule to reduce the high cost
of part-time coaches' salaries, over $60,000 annually in some cases, by limiting
compensation to entry-level coaches to $16,000 per year. The NCAA does not
dispute that the cost-reduction has effectively reduced restricted-earnings
coaches' salaries. Because the REC Rule was successful in artificially lowering
the price of coaching services, no further evidence or analysis is required to find
market power to set prices. Thus, in the case at bar, the district court did not
need to resolve issues of fact pertaining to the definition of the relevant market in
order to support its decision on summary judgment that the REC Rule is a naked
price restraint.

The NCAA contends that the district court misapplied Board of Regents, a
case in which the Court had before it detailed factual findings that resulted from
a trial. The NCAA is right about the procedural posture of Board of Regents, but
wrong about its significance. In Board of Regents the Supreme Court relied on
the district court's findings that the television plan in fact resulted in horizontal
price restraints. See 468 U.S. at 99-100. Because the REC Rule is a horizontal
price restraint on its face, similar factual findings are not required in this case.
Further, although in Board of Regents the Court found that the parties had proven
factually that the NCAA had market power in the defined market of college
football, the Court said that as a matter of law it did not need to analyze market
power because horizontal price restraints are so obviously anticompetitive. Id. at
109-10.

Finally, the NCAA cites Hennessey v. NCAA, 564 F.2d 1136 (5th Cir.
1977) (per curiam). In Hennessey, assistant football and basketball coaches
challenged a NCAA bylaw limiting the number of assistant coaches member
institutions could employ at any one time. Seeid. at 1141-42. The Fifth
Circuit
upheld the rule, concluding that the plaintiff failed to show that the rule was an
unreasonable restraint of trade after weighing the anticompetitive effects with the
procompetitive benefits of the restriction. Seeid. at 1153-54.

Hennessey is not controlling for a variety of reasons. First, the REC Rule
is distinguishable from the agreement at issue in Hennessey. Hennessey
addresses a restriction on the number of assistant coaches that a Division I school
could employ whereas the REC Rule limits salary of a certain category of
coaches. Therefore, the analysis of the reasonableness of the restraint in
Hennessey, which did not involve a naked restriction on price, will not control
the analysis of the reasonableness of the REC Rule.(13)

Second, the Hennessey court placed the burden of showing the
unreasonableness of the coaching restriction in that case on the plaintiff and then
found that the plaintiff could not make such a showing because the rule had only
recently been implemented. Seeid. In our analysis, the plaintiff only has the
burden of establishing the anticompetitive effect of the restraint at issue. Once
the plaintiff meets that burden, which the coaches have done in this case by
showing the naked and effective price-fixing character of the agreement, the
burden shifts to the defendant to justify the restraint as a "reasonable" one. See I
ABA Section of Antitrust Law, supra, at 66 (citing cases). It is on this step that
the defendant NCAA stumbles. Thus, we disagree with the Fifth Circuit's
allocation of the burden of proof in Hennessey, and we note that this shift in the
burden of proof could explain the difference in outcome between our case and
Hennessey.

Third, Hennessey predates the Supreme Court's opinion in Board of
Regents. The Fifth Circuit very well may have reached a different result in
Hennessey if it had the benefit of that precedent, because Board of Regents
suggests a less deferential approach to the NCAA than the approach taken in
Hennessey. Finally, of course, Hennessey is not Tenth Circuit precedent, and
accordingly is not binding authority on us.

B. Procompetitive Rationales

Under a rule of reason analysis, an agreement to restrain trade may still
survive scrutiny under section 1 if the procompetitive benefits of the restraint
justify the anticompetitive effects. SeeClorox, 117 F.3d at 56;
Hairston, 101
F.3d at 1319; Orson, 79 F.3d at 1368; Brown Univ., 5 F.3d at 669; seealso I
ABA Section of Antitrust Law, supra, at 53, 66; Areeda, supra,
¶ 1502, at 371-72. Justifications offered under the rule of reason may be considered
only to the
extent that they tend to show that, on balance, "the challenged restraint enhances
competition." Board of Regents, 468 U.S. at 104.

In Board of Regents the Supreme Court recognized that certain horizontal
restraints, such as the conditions of the contest and the eligibility of participants,
are justifiable under the antitrust laws because they are necessary to create the
product of competitive college sports. Id. at 117. Thus, the only legitimate
rationales that we will recognize in support of the REC Rule are those necessary
to produce competitive intercollegiate sports. The NCAA advanced three
justifications for the salary limits: retaining entry-level coaching positions;
reducing costs; and maintaining competitive equity. We address each of them in
turn.

1. Retention of Entry-Level Positions

The NCAA argues that the plan serves the procompetitive goal of retaining
an entry-level coaching position. The NCAA asserts that the plan will allow
younger, less experienced coaches entry into Division I coaching positions.
While opening up coaching positions for younger people may have social value
apart from its affect on competition, we may not consider such values unless they
impact upon competition. SeeSuperior Court Trial Lawyers, 493 U.S. at
423-24
(rejecting argument by trial lawyers that boycott of court-appointed work was
justified to promote the social value of increasing the quality of representation);
FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 462-64 (1986) (refusing to
consider ethical policy of insuring proper dental care as a valid procompetitive
end); Board of Regents, 468 U.S. at 117 (rejecting justifications offered to
support a challenged restraint that do not promote competition as "inconsistent
with the basic policy of the Sherman Act"); National Soc'y of Prof'l Engineers,
435 U.S. at 695-96 (holding that policy goals such as protecting public safety and
promoting ethical behavior do not qualify as legitimate procompetitive objectives
unless they serve to "regulate and promote" competition); seealso Areeda,
supra,
¶ 1504, at 381 (courts should "not inquire whether the restraint promotes the
'public interest' but only whether it increases competition.").(14)

The NCAA also contends that limiting one of the four available coaching
positions on a Division I basketball team to an entry level position will create
more balanced competition by barring some teams from hiring four experienced
coaches instead of three. However, the REC Rule contained no restrictions other
than salary designed to insure that the position would be filled by entry-level
applicants; it could be filled with experienced applicants. In addition, under the
REC Rule, schools can still pay restricted-earnings coaches more than $16,000
per year by hiring them for physical education or other teaching positions. In
fact, the evidence in the record tends to demonstrate that at least some schools
designated persons with many years of experience as the restricted-earnings
coach. The NCAA did not present any evidence showing that restricted-earnings
positions have been filled by entry-level applicants or that the rules will be
effective over time in accomplishing this goal. Nothing in the record suggests
that the salary limits for restricted-earnings coaches will be effective at creating
entry-level positions. Thus, the NCAA failed to present a triable issue of fact as
to whether preserving entry-level positions served a legitimate procompetitive
end of balancing competition.

2. Cost Reduction

The NCAA next advances the justification that the plan will cut costs.
However, cost-cutting by itself is not a valid procompetitive justification. If it
were, any group of competing buyers could agree on maximum prices. Lower
prices cannot justify a cartel's control of prices charged by suppliers, because the
cartel ultimately robs the suppliers of the normal fruits of their enterprises. See
Areeda, supra, ¶ 1504, at 379. Further, setting maximum prices reduces
the
incentive among suppliers to improve their products. Likewise, in our case,
coaches have less incentive to improve their performance if their salaries are
capped. As the Supreme Court reiterated in Superior Court Trial Lawyers, 493
U.S. at 423, "the Sherman Act reflects a legislative judgment that ultimately
competition will produce not only lower prices, but also better goods and
services. . . This judgment recognizes that all elements of a bargain--quality,
service, safety, and durability--and not just the immediate cost, are favorably
affected by the free opportunity to select among alternative offers." (internal
quotations omitted).

The NCAA adopted the REC Rule because without it competition would
lead to higher prices. The REC Rule was proposed as a way to prevent Division I
schools from engaging in behavior the association termed "keeping up with the
Joneses," i.e., competing. However, the NCAA cannot argue that competition for
coaches is an evil because the Sherman Act "precludes inquiry into the question
whether competition is good or bad." National Soc'y of Prof'l Engineers, 435
U.S. at 695.

While increasing output, creating operating efficiencies, making a new
product available, enhancing product or service quality, and widening consumer
choice have been accepted by courts as justifications for otherwise
anticompetitive agreements, mere profitability or cost savings have not qualified
as a defense under the antitrust laws. See I ABA Section of Antitrust Law,
supra,
at 66-67 (citing cases). The NCAA's cost containment justification is illegitimate
because the NCAA:

[I]mproperly assumes that antitrust law should not apply to condemn the
creation of market power in an input market. The exercise of market
power by a group of buyers virtually always results in lower costs to the
buyers--a consequence which arguably is beneficial to the members of the
industry and ultimately their consumers. If holding down costs by the
exercise of market power over suppliers, rather than just by increased
efficiency, is a procompetitive effect justifying joint conduct, then section
1 can never apply to input markets or buyer cartels. That is not and cannot
be the law.

Roberts, supra, at 2643. Reducing costs for member institutions, without more,
does not justify the anticompetitive effects of the REC Rule.

The NCAA argues that reducing costs can be considered a procompetitive
justification because doing so is necessary to maintain the existence of
competitive intercollegiate sports. Emphasizing the deficits many college sports
programs faced prior to the adoption of the REC Rule, the NCAA quotes with
approval language from the opinion in Hennessey to support its claim that
reducing costs serves as a procompetitive benefit:

Colleges with more successful programs, both competitively and
economically, were seen as taking advantage of their success by expanding
their programs, to the ultimate detriment of the whole system of
intercollegiate athletics. Financial pressures upon many members, not
merely to "catch up", but to "keep up," were beginning to threaten both the
competitive, and the amateur, nature of the programs, leading quite
possibly to abandonment by many. "Minor" and "minority" sports were
viewed as imperiled by concentration upon the "money makers," such as
varsity football and basketball.

Bylaw 12-1 [the rule at issue in Hennessey] was, with other rules
adopted at the same time, intended to be an "economy measure". In this
sense it was both in design and effect one having commercial impact. But
the fundamental objective in mind was to preserve and foster competition
in intercollegiate athletics-by curtailing, as it were, potentially
monopolistic practices by the more powerful-and to reorient the programs
into their traditional role as amateur sports operating as part of the
educational process.

564 F.2d at 1153.

We are dubious that the goal of cost reductions can serve as a legally
sufficient justification for a buyers' agreement to fix prices even if such cost
reductions are necessary to save inefficient or unsuccessful competitors from
failure. Nevertheless, we need not consider whether cost reductions may have
been required to "save" intercollegiate athletics and whether such an objective
served as a legitimate procompetitive end because the NCAA presents no
evidence that limits on restricted-earning coaches' salaries would be successful in
reducing deficits, let alone that such reductions were necessary to save college
basketball. Moreover, the REC Rule does not equalize the overall amount of
money Division I schools are permitted to spend on their basketball programs.
There is no reason to think that the money saved by a school on the salary of a
restricted-earnings coach will not be put into another aspect of the school's
basketball program, such as equipment or even another coach's salary, thereby
increasing inequity in that area. AccordBoard of Regents, 468 U.S. at 118-19
(rejecting NCAA's argument that television rights plan would increase
competitive equity among NCAA teams where the plan did not "regulate the
amount of money that any college may spend on its football program").

3. Maintaining Competitiveness

We note that the NCAA must be able to ensure some competitive equity
between member institutions in order to produce a marketable product: a "team
must try to establish itself as a winner, but it must not win so often and so
convincingly that the outcome will never be in doubt, or else there will be no
marketable 'competition.'" Michael Jay Kaplan, Annotation, Application of
Federal Antitrust Laws to Professional Sports, 18 A.L.R. Fed. 489 § 2(a)
(1974).
The NCAA asserts that the REC Rule will help to maintain competitive equity by
preventing wealthier schools from placing a more experienced, higher-priced
coach in the position of restricted-earnings coach. The NCAA again cites
Hennessey to support its position, and again we find Hennessey to be
unpersuasive for the reasons previously articulated.

While the REC Rule will equalize the salaries paid to entry-level coaches
in Division I schools, it is not clear that the REC Rule will equalize the
experience level of such coaches.(15)
Nowhere does the NCAA prove that the
salary restrictions enhance competition, level an uneven playing field, or reduce
coaching inequities. Rather, the NCAA only presented evidence that the cost
reductions would be achieved in such a way so as to maintain without
"significantly altering," "adversely affecting," or "disturbing" the existing
competitive balance. The undisputed record reveals that the REC Rule is nothing
more than a cost-cutting measure and shows that the only consideration the
NCAA gave to competitive balance was simply to structure the rule so as not to
exacerbate competitive imbalance. Thus, on its face, the REC Rule is not
directed towards competitive balance nor is the nexus between the rule and a
compelling need to maintain competitive balance sufficiently clear on this record
to withstand a motion for summary judgment.(16)

4. Wait and See

In the alternative, the NCAA argues that even if evidence of the
procompetitive benefits of the REC Rule are not forthcoming at the moment, we
should follow the advice of the court in Hennessey and adopt a "wait and see"
approach to give the rule time to succeed. See 564 F.2d at 1153-54 (refusing to
place the burden on the NCAA to prove that the procompetitive benefits of the
challenged restraint in that case outweighed its negative effects because doing so
would "foreclose . . . any opportunity to build up experience on which the issue
ultimately could be judged"). However, we believe that the court in Hennessey
erred as a matter of law to the extent that the court tried to free the NCAA as the
defendant from its burden of showing that the procompetitive justifications for a
restraint on trade outweigh its anticompetitive effects. The Supreme Court in
Board of Regents made it clear that the NCAA still shoulders that burden, see
486 U.S. at 104, and we hold that the NCAA failed to provide sufficient evidence
to carry its burden in this case.

IV. Conclusion

For the reasons discussed above, we AFFIRM the district court's order
granting a permanent injunction barring the NCAA from reenacting compensation
limits such as those contained in the REC Rule based on its order granting
summary judgment to the plaintiffs on the issue of antitrust liability.

FOOTNOTESClick footnote number to return to corresponding location in the text.

1. Because this appeal stems from the grant of
a motion for summary
judgment, we review the facts taken in the light most favorable to the NCAA, the
non-moving party. SeeKaul v. Stephan, 83 F.3d 1208, 1212 (10th Cir. 1996).

Number Limits. There shall be a limit on the number of coaches that may
be employed by an institution in each sport (other than football) as follows:
Sport: Basketball, Men; Head or Assistant Coach: 3; Restricted-Earnings
Coach: 1.

3. The proposed rule included a "grandfather
clause" exempting schools
from the staffing limitations where academic tenure, enforceable written
contracts, or formal security-of-employment commitments would make it
impossible to comply with such limits.

Restricted-Earnings Coach. A restricted-earnings coach is any coach who
is designated by the institution's athletics department to perform coaching
duties and who serves in that capacity on a volunteer or paid basis with the
following limitations on earnings derived from the member institution:

(a) During the academic year, a restricted-earnings coach may receive
compensation or remuneration from the institution's athletics
department that is not in excess of either $12,000 or the actual cost
of educational expenses incurred as a graduate student.

(b) During the summer, a restricted-earnings coach may receive
compensation or remuneration (total remuneration shall not exceed
$4,000) from:

(1) The institution's athletics department or any organization
funded in whole or in part by the athletics department or that is
involved primarily in the promotion of the institution's
athletics program (e.g., booster club, athletics foundation
association);

(2) The institution's camp or clinic,

(3) Camps or clinics owned or operated by institutional
employees, or

(4) Another member institution's summer camp.

(c) During the summer or the academic year, the restricted-earnings
coach may receive compensation for performing duties for another
department or office of the institution, provided:

(1) The compensation received for those duties outside the athletic
department is commensurate with that received by others
performing those same or similar assignments,

(2) The ratio of compensation received for coaching duties and
any other duties is directly proportionate to the amount of time
devoted to the two areas of assignment, and

(3) The individual is qualified for and is performing the duties
outside the athletic department for which the individual is
compensated.

(d) Compensation for employment from a source outside the institution
during the academic year or from sources other than those specified
under 11.02.3-(b) and 11.02.3-(c) above during the summer shall be
excluded from the individual's limit on remuneration.

(a) The district courts shall have original jurisdiction of any civil action or
proceeding arising under any Act of Congress regulating commerce or
protecting trade and commerce against restraints and monopolies.

(a) Except as provided in subsection (b) of this section [regarding foreign
states], any person who shall be injured in his business or property by
reason of anything forbidden in the antitrust laws may sue therefor in any
district court of the United States in the district in which the defendant
resides or is found or has an agent, without respect to the amount in
controversy, and shall recover threefold the damages by him sustained, and
the cost of suit, including a reasonable attorney's fee.

15 U.S.C. § 26 provides in relevant part:

Any person, firm, corporation, or association shall be entitled to sue for and
have injunctive relief, in any court of the United States having jurisdiction
over the parties, against threatened loss or damage by a violation of the
antitrust laws.

9. The NCAA does not challenge other
portions of the order, such as the
finding that a remedy at law would be insufficient.

10. In several instances, the NCAA tries to
style itself as a joint venture,
arguing that joint ventures are entitled to more favorable treatment under the
antitrust laws. However, the Supreme Court rejected categorizing the NCAA as a
joint venture with respect to the television rights plan challenged in Board of
Regents because the plan did not "eliminate individual sales of broadcasts, since
these still occur, albeit subject to fixed prices and output limitations." 468 U.S.
at 113. Here, the NCAA does not hire coaches for the teams. Rather the teams
hire coaches individually, "albeit subject to fixed prices." Thus, the NCAA does not
operate as a joint venture for the purposes of hiring assistant basketball coaches. As a
result, we do not consider the question of how joint ventures should be treated under the
antitrust laws.

11. Albeit often an abbreviated rule of
reason analysis, as discussed below.

12. According to the NCAA, the relevant
market would include, in addition
to coaching positions in Division I schools, coaching positions in Division II and
III schools, junior colleges, high schools, and professional teams.

13. Indeed, plaintiffs do not challenge the
restrictions on the number of
coaches included in the NCAA's bylaws.

14. Similarly, the NCAA cannot be heard to
argue that the REC Rule fosters
the amateurism that serves as the hallmark of NCAA competition. While courts
should afford the NCAA plenty of room under the antitrust laws to preserve the
amateur character of intercollegiate athletics, seeBanks, 977 F.2d at 1089-93,
courts have only legitimized rules designed to ensure the amateur status of
student athletes, not coaches.

15. For example, some more-experienced
coaches may take restricted-earnings coach positions with programs such as those at Duke or
North Carolina,
despite the lower salary, because of the national prominence of those programs. In
fact, absent the REC Rule, the market might produce greater equity in coaching
talent, because a school with a less-prominent basketball program might be able
to entice a more-experienced coach away from a prominent program by offering a
higher salary.

16. Because we hold that the NCAA did not
establish evidence of sufficient
procompetitive benefits, we need not address question of whether the plaintiffs
were able to show that comparable procompetitive benefits could be achieved
through viable, less anticompetitive means. See I ABA Section of Antitrust Law,
supra, at 66 (collecting cases); Areeda, supra, ¶ 1502, at 372 (if
the defendant
proves procompetitive justifications, the plaintiff must demonstrate that less
restrictive means could have been used to achieve the same results to prevail
under the rule of reason analysis).